The Nigerian government will impose a 5% tax on all fossil fuel sales beginning January 2026 under its new tax law.

According to the law, Nigerians must pay a 5% surcharge on fossil fuel products provided or produced in Nigeria.

The regulation said that the fee shall be collected at the time of a changeable transaction, which is at the point of sale.

However, the surcharge exempts clean or renewable energy, household kerosene, cooking gas, and compressed natural gas.

The new directive places a direct price on fossil fuel consumption and aims to shift demand to cleaner energy sources.

Experts say it functions like a carbon tax, but framed as a percentage rather than a fixed cost.

They disclosed that globally, carbon taxes discourage fossil fuel use while raising government revenue, which is seen as a double dividend on carbon pricing.

Analysts say the Nigerian government deserves credit for embedding the levy in broader tax reforms, like Sweden’s 1990s carbon tax model According to reports, Nigeria’s 5% surcharge represents a strong move to break from its dependence on fossil fuels.

If done effectively, the policy could reduce growth from emissions, boost Nigeria’s climate commitments, and mobilise funds for sustainable development. The development comes two years after the government of President Bola Tinubu removed subsidies on petroleum products.

Alongside the subsidy removal, higher electricity tariffs, and accelerated renewable energy adoption have been the new mantra of the present government.

Reports reveal that Nigeria’s solar capacity rose in 2024, pushing the country to fourth place in Africa, adding 63.5MWp and reaching 385.7MWp in total capacity as households seek cheaper energy sources.

Energy policy analysts have said a flat rate of 5% disregards inequality in the country, where millions and SMEs rely on petrol generators.

They advocated that a progressive surcharge based on income and consumption levels would have been a better approach to protect vulnerable citizens. “Nigerians are not ripe or ready for these kinds of taxes or levies due to widespread poverty and income inequality,” Adeola Yusuf, an energy policy analyst, said.

“What the government should have done is a gradual introduction of the surcharge, first in urban areas and then spread across the country. This way they can gauge responses and acceptance and reduce hardship,” he said.

Osas Igho, a financial analyst, decried the potential impact of the new levy on Nigerians, goods and services.

“This will stoke inflation because motorists will hike fares, which will have ripple effects in the wider economy,” he said.

The government expects that revenue from the surcharge would support the implementation of the Climate Change Act 2021, fund the National Climate Change Council Secretariat, or finance the adaptation projects, clean energy technology and green jobs.

For several decades, Nigeria has relied on fossil fuels. The 5% surcharge may be the external force that could push Nigeria toward a sustainable path, experts say.